Economic Outlook: What’s Ahead in 2020
Throughout 2019, the Federal Reserve’s Open Market Committee cut rates three times by a total of 0.75 percent. Rate cuts normally come when the economy is on the downward slope or to prevent it from heading in that direction. By that measure, the Fed’s rate cuts worked. They eliminated the inverted yield curve, which is a strong harbinger of recession, and, I believe, significantly reduced our chances of seeing a recession until late 2021 or 2022.
What can we expect from the American economy in 2020? Let’s take a look.
Slower Growth
We believe the Fed did a good job in 2019 of buying more time in the current economic cycle, which means we expect continued growth in 2020. That growth may be slower than in years past, but it should continue nonetheless. We expect GDP growth of around 1.5 percent, which is lower than the previous three years.
My outlook for the markets and economy in 2020 remains positive. We believe 10-year and short Treasury bond yields will continue to rise, which is important. When they decline, that’s when the yield curve begins to invert and a downturn becomes imminent.
What does that mean for you? More growth would obviously be good for everyone, as our economy expands, consumer spending continues and businesses have the opportunity to prosper. Lower rates make a favorable environment for borrowing money and an opportune time to evaluate savings and investment strategies to ensure you’re getting the return you need.
With growth expected to slow, it’s also a good time for business owners to develop a defensive strategy. Don’t expect the economy to give you any more gifts. Look closely at expenses, cash flow, maximizing revenue, investments, capital expenditures and staffing strategies now to help prevent surprises in 2021 and 2022.
End of the Trade Wars
With new trade agreements on the way with Mexico and Canada and a phase one deal with China, it appears the sabre rattling over trade may be in the past. The goal of any new trade deal is to be more reflective of the modern American economy, including protections for intellectual property. That could be good news for a number of sectors, but particularly for manufacturing and durable goods, which could benefit the materials and financial sectors.
What does that mean for you? If you’re a business owner tied to manufacturing, logistics, production or other areas directly affected by the trade wars, this news comes as welcome relief. But it’s still smart to be cautious, as 2019 showed. Those in service industries have not been as affected, but the agreements could be good news for the profitability of American ideas and services.
The stock market remains expensive for investors, but we expect some sectors that struggled in 2019 to pick up in 2020. We like energy, industrials and financials – value stocks with yields. We are also optimistic about durable goods manufacturing and materials. All of these sectors could benefit from a weakening dollar and higher inflation expectations in 2020 as American growth slows.
Consumer Spending and Housing
One of the bright spots of American growth continues to be consumer spending. People have cash on hand and readily available credit, and they’re spending it in businesses like yours. However, the housing market continues to soften. Sales of existing homes fell 1.8 percent in 2019, and that trend should continue.
Exceptions are out there. In Nashville, for example, the housing market has remained above average, though not quite as hot as it once was. Across the U.S., home prices rose by 0.8 percent last year, and they could fall in 2020.
What does that mean for you? Business owners could see steady revenues as spending continues, though caution is always a good posture. Those looking to buy, sell or invest in homes should pay close attention to the shifting landscape. What was a seller’s market could easily move to the buyers. That’s good news for some, especially as the Federal funds rate has decreased.
As always, it’s best practice to consult a financial professional before making major changes in your personal or business strategies. Working with a trusted advisor or financial planner, you can develop an approach to 2020 that will help you meet your goals and prepare for what’s ahead.
